Intel pops 10% after earnings beat shows progress toward $3 billion in cost savings

Technology

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Intel CEO Pat Gelsinger speaks during the Mobileye Global Inc. initial public offering at the Nasdaq MarketSite in New York, Oct. 26, 2022.
Michael Nagle | Bloomberg | Getty Images

Intel stock jumped 10% in premarket trading on Friday morning after the company beat Wall Street expectations for profit and sales.

On Thursday, the chipmaker reported earnings per share of 41 cents, adjusted, versus the LSEG estimate of 22 cents. It posted $14.16 billion in revenue for the quarter, ahead of analyst expectations of $13.53 billion, but down 8% from the year-ago quarter. It marked Intel’s seventh consecutive quarter of declining sales.

The Friday boost was largely due to strong demand for PCs and management’s ability to stay on course for a number of initiatives it had previously laid out for the company.

Intel’s premarket run also comes after shares fell earlier in the week in the wake of reports that Nvidia, which dominates artificial intelligence chips, plans to expand into PC chips via a partnership with Arm.

Goldman Sachs analysts acknowledged that their expectations for Intel had been too cautious but added that they are concerned about Intel’s future transformation and foundry business, which is the company’s relatively new chip-manufacturing business.

“While our near-term estimates were clearly too cautious and we acknowledge Intel’s strong execution, particularly on its technology roadmap (i.e. 5 nodes in 4 years), we continue to perceive Intel’s pursuit of an internal foundry model as a challenge,” Goldman Sachs analysts wrote in a note to investors.

They also noted concerns over the company’s Data Center wallet share. Morgan Stanley analysts expressed similar concerns.

However, Intel’s AI performance and foundry business were positives for Morgan Stanley.

“The bigger positive headlines will come from the peripherals – foundry and AI commentary. We expect the stock to offer tactically positive risk reward from here, as the ongoing market recovery will make investors receptive to any of the longer term positives,” Morgan Stanley analysts wrote in a note to investors.

They added that in the long run, Intel’s “roadmap is a show-me situation for large customers.”

Intel is also on track to hit its goal of $3 billion in savings for the year, according to CEO Pat Gelsinger. JPMorgan analysts praised the savings in an investor note.

“The team is also executing well against its cost saving initiatives and indicated that they are on track with their plans for $3B in savings to COGS/Opex in 2023,” JPMorgan analysts wrote. They added that, although they see “continued solid execution” and “compute fundamentals continue gradually improving,” in their view, “the next 12 months will be the most difficult for the team.”

The JPMorgan analysts raised their price target from $35 to $37, writing that Intel’s next year of data center product launches and more could help predict how the company’s goals will progress over the next three to five years.

–CNBC’s Kif Leswing and Michael Bloom contributed to this report.

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